Question

Brooke needs 5 hours to paint a beautiful picture and 2 hours to make a picture...

Brooke needs 5 hours to paint a beautiful picture and 2 hours to make a picture frame. Georgia takes 8 hours to paint an equally beautiful picture and 4 hours to make a picture frame.
a) What two conditions are necessary for Brooke to produce on her PPF?
b) Who has the absolute advantage in pictures? Who has the comparative advantage in pictures?
c) If Brooke and Georgia agree to a trade, what will be the price range (lowest possible price and highest possible price) of pictures?

A)ppf shows combination of two goods that can be produced by efficient use of technology and full use of resources .

To produce on ppf ,the conditions are

i) efficient use of technology ( for brooke,it is his skills)

ii) full use of resources ( for brooke ,it is time)

B)brooke takes 5 hours to make picture ,but Georgia takes hours to make picture ,so with same total hours,brooke can make more painting than Georgia.,so broorke has absolute advantage in picture.

Brooke opportunity cost of producing painting= amount of picture frame he could produce in that time ,that he used to produce painting=5/2=2.5

Georgia opportunity cost=8/4=2

Georgia opportunity cost is lower than Brooke opportunity cost to produce painting ,means Georgia has to give up less picture frame production than Brooke.so Georgia has comparitive advantage in picture.

C)the opportunity cost will be the lowest and highest possible prices of pictures if they do trade.

The lowest possible price=opportunity cost of Georgia=2, trade at this price will benefit Brooke ,as he has cost of 2.5 of producing picture ,so getting at 2 will benefit her.

The highest possible price=opportunity cost of Brooke=2.5 , trade at this price will benefit Georgia ,as she will get 2.5 picture frame for 1 picture ,when she can only produce 2 picture frame in exchange of 1 picture.,so will be benfeted from trade.

And price between 2 and 2.5 will benefit both.

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